Netflix: Oppenheimer Ups Target to $500; 70M Int’l Subs by 2020

By Tiernan Ray

Shares of Netflix (NFLX) are up $1.60, or half 0.4%, at $419.43, after Oppenheimer & Co.’s Jason Helfstein this morning reiterated an Outperform rating, while raising his price target to $500 from $435, concluding subscribers in Canada and overseas will rise sharply this year.

“We expect NFLX to end 2014 with 17 million international subscribers, a 55% increase over 2013,” writes Helfstein, noting that international subscribers were at 13 million at the end of the March quarter.

He thinks that will rise to 70 million international households by 2020, a 30% annual compounded rate of growth.

Helfstein notes that Netflix doesn’t break out individual country totals outside the U.S., so he had to do his own guesstimations.

He offers the following points on his methodology:

Reviewed publicly available comments from management to determine international markets and planned launches;

Forecast broadband penetration rates for each country based on data from the Organization for Economic Cooperation and Development (OECD) and the International Telecommunication Union (ITU);

Estimated NFLX’s penetration of broadband households based on historical subscriber growth in Canada and UK/Ireland.

Helfstein makes the following assumptions about international markets:

We do not assume any growth in the global population. According to The World Bank, the global population has increases by approximately 1.4% per year over the past ten years. However, we believe analyzing growth in broadband households is more relevant for an analysis on Netflix penetration.

We assume 2020 broadband penetration will increase by roughly 10% in each market. According to the ITU, 134, or 69% of all countries had a plan, strategy or policy to promote broadband in 2013. The ITU projects 40% of global households will be connected to the internet in 2015. We believe a 10% increase in penetration over 2014 is conservative, and implies an average penetration rate of 55% in 2020. Point Topic forecasts 940 million global broadband subscribers by 2018. Our analysis assumes 2020 Netflix markets covering 489 million broadband subscribers, roughly half of broadband subscribers worldwide.

For markets that were launched before 2015, we assume Netflix’s penetration will increase by 20%, on average. For markets that are launched in 2015 and thereafter, we apply a conservative penetration rate, with older markets having a higher penetration than recently launched markets.

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There are 2 comments

JUNE 2, 2014 5:00 P.M.

JP wrote:

Can you ask the Great Karnak how much money they are going to make in 2020? Last quarter they had 46 million streaming subscribers in the world and made $160 million for the quarter. If we hold everything constant that works out to $640 million per year. Now let's assume international grows to 70 million subscribers in 2020 and US grows to 60 million. Giving you 130 million subscribers in 2020, which would triple their current size. Triple the current yearly profits would give you $1.9 billion a year in profits in 2020. That would give you a PE of 13 on today's market cap in 2020. The problem is Netflix is a $25 billion company company today and we have a lot of unknowns between now and 2020.

In case you don't get it, that is a strong indication that Netflix is over valued!

JUNE 3, 2014 9:52 A.M.

joe wrote:

if there making so much money why can't they add better and newer movies?

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.